Channel firms deciding on a cloud play need to answer a few critical questions: Can I make money doing this? What type of cloud business works best for me? And who are my customers? This basic discussion of the economics of cloud computing has been front-and-center in the channel for the better part of the last three to five years, complicated by the wide variety of cloud business model options and potential revenue structures to explore, as well as differing customer needs.
And yet, as found in CompTIA’s fourth annual Trends in Cloud Computing research study, solution providers have been moving more decisively into the cloud. Nearly 6 in 10 respondents to the survey said they proactively pursued multiple cloud business models in an attempt to quickly and comprehensively enter the cloud market, with medium and larger firms more likely to have gone this route than the smallest channel player. Half of channel firms today describe their cloud business as “mature,” while another 4 in 10 claim to have reached at least a degree of cloud services’ maturity alongside their more established lines of business. By contrast, just 13 percent said their current cloud business is not mature at all today.
With the adoption rate climbing, more channel companies today have a clearer picture on the numbers. They have assembled quantifiable tracking metrics on revenue and profit margin, which can serve as a guidepost for channel companies moving more slowly into cloud.
Some details: Roughly 6 in 10 channel firms that described the state of their cloud business as mature and strategic said that cloud-based profit margins are generally higher than their margins on their other lines of business. These metrics compare against just 2 in 10 firms with “non-mature” cloud practices that said cloud profits were higher than profits from existing offerings.
Given that many product-focused vendors today are either experiencing a demand slowdown – Dell and HP, for example – or, like Cisco, forecasting difficult market roads ahead, the decision to place an emphasis on cloud and other types of services by solution providers could prove to be a particularly smart one. Because while customers might be more reticent to shell out capital on products, as some tech manufacturers are seeing, they still need IT services, whether it is managed, professional or cloud. Case in point: Two thirds (63 percent) of channel firms in the study characterize customer demand for cloud-based IT solutions and services as either very high or high, with another 3 in 10 describing demand as somewhat high. Just 9 percent said demand for these solutions was low.
And yet despite the forward progress in the market and the enthusiasm of customers, navigating a new business model isn’t always smooth sailing for channel firms. Cloud revenue models differ greatly from transactional product sales, which affect everything from incoming cash flow to the ways in which sales reps are paid. What was once a system of large-check product transactions is now a model based on small increments of recurring revenue each month. Also working against the channel is the precipitous price dropping among cloud services giants such as Amazon, which proves difficult to compete against.
The next several years will shake out the cloud picture for the channel in even greater detail.
Check out this slideshow to learn more about CompTIA’s fourth annual Trends in Cloud Computing research study.
